Tuesday, August 23, 2011

Bloomberg Endorses Shulmaven View for Infrastructure Projects

Bloomberg News has joined Mort Zuckerman of US News and Noam Sheiber of The New Republic in endorsing the Shulmaven view of fast-tracking environmental approvals and waiving the prevailing wage requirements of the Davis-Bacon Act for new infrastructure projects. Their editorial calls for a $100 billion program. Hopefully President Obama will see the light.

Full url: http://www.bloomberg.com/news/2011-08-23/a-public-works-spending-deal-even-the-republican-party-can-embrace-view.html

Sunday, August 21, 2011

An Open Letter to President Obama on Jobs

Dear Mr. President:

I hope you are enjoying your working vacation in Martha's Vinyard. You sure could use a break from Washington and the emerging bear market on Wall Street. You told us that you will address the nation on the need to create jobs after Labor Day. I hope you come up with some good ideas in the clean ocean air. We surely can use them because we have a real employment emergency that is draining both the economy and the spirit of our nation.

Given the emergency, I assume that you are open to a few new and some old ideas about job creation. All the ideas you mentioned on your midwest tour such as ratifying the free trade agreements, passing the new patent law, extending the social security tax cut and extending unemployment benefits are mostly helpful, but they really won't do a whole lot in the short run.

So here are a few ideas that might move the dial.

1. We need an all out domestic energy program. That means more offshore drilling, establishing clear rules and best practices for hydraulic fracturing drilling technolgy that has the real potential to limit our dependence on foreign oil and approving the privately financed Keystone XL Pipeline that will bring Canadian oil to our gulf coast. Note that all of the above does not involve tax dollars. On the public side keep up and step up the research into energy alternatives, but have no illusions about all of the "green" jobs it will create.

2. Spend big on infrastucture. The $50 billion infrastructure bank is small potatoes and may take awhile to launch. Spend $200 billion, but fast track or eliminate the environmental approval process and waive the prevailing wage requirements of the Davis-Bacon Act. With very low interest rates and high unemployment, now is the time to borrow and spend for worthy projects.

3. Give employers a 5% tax credit for increasing their wage bill subject to FICA employment taxes. I think this would work far better than your current payroll tax cut.

4. Have Treasury sit down with the business lobbies and cut a deal on corporate tax reform to present to the Congress. I fear the normal process might take forever.

5. Fund the above with a combination of a one-time lower tax rate for repatriating foreign sourced corporate earnings that are idling overseas, a higher gasoline tax and a down payment on entitlement reform. By the way, if you can get it, going big on a grand bargain for reducing our structural deficit is good idea, but you have to convince yourself and your friends in Congress that the real heavy lifting has to be on the spending side.

None of this will be easy, but when you are President all the easy stuff gets decided before it gets to you. Enjoy your vacation and come back with a real program.


David Shulman

Tuesday, August 2, 2011

The Debt Ceiling Deal: Looking for Cuts in All of the Wrong Places

At last the debt ceiling deal is done. Our nation won't default and there will be about $2.2 trillion in cuts,although there maybe some tax increases included in that number. However $2.2 trillion represents a small downpayment on the $8 trillion that will ultimately be required. Yes, $8 trillion. The much discussed $4 trillion grand bargain was also only a downpayment on what is needed. Moreover with the economy softening much of the $2.2 trillion will be washed away with lower tax collections and higher automatic spending. Thus don't be surprised if we see both tax cuts and spending back on the agenda in the Fall.

The real problem with the deal is that the cuts are in the wrong places. Too be sure much Nancy Pelosi's stimulus package of two years ago had to be undone, but our nation still needs infrastructure, research and yes, defense spending. In my opinion we will come to regret the steep cuts in the defense budget.

What should have been cut are the three big drivers of the longer term deficit: medicare, medicaid and social security. The Republicans made a huge mistake in not offering up some tax increases to achieve cuts in these areas. Unfortunately we will have to wait until 2013 until painful cuts have to made in the major entitlement programs. What I am writing about is not politics, but rather arithmetic. Bluntly put, medicare, medicaid and social security are not sustainable. Indeed it is likely that in a few years we will say the same thing about Obamacare.

As an aside an elegant deficit reduction plan would have kept the taxes embedded in Obamacare and delayed implementation of the spending for three years. But the President and the Democrats really don't care about deficit reduction, just as the refusal of the Republicans to to accept modest tax increases demonstrate that, they too, do not care about deficit reduction either. The Simpson-Bowles Commission had it right and President Obama's biggest political mistake was his failure to endorse the their recomendations.